AAA rating not bottom line for Vic: panel

For years state treasurers have made a virtue out of chasing a AAA credit rating, but that approach has received short shrift from an expert panel examining Victoria’s financial footing.

Amongst its 40 page rewriting of the state’s economic position the panel headed by former Victorian Department of Treasury and Finance secretary Michael Vertigan, appointed to advise the new coalition government on the state of the budget, makes no virtue of a AAA rating and even recommends ditching it as an aspiration.

In doing so, the panel’s interim report, released on Wednesday, also found space to put Moody’s and Standard & Poor’s in their place, arguing the long-held commitment to pursue a AAA rating may not be in the state’s interests.

“Credit rating agencies have only the interests of one stakeholder in mind – bondholders – and not the broader community," the report says.

The panel says a credit rating “relates primarily to debt management" which might not actually reflect that the government has delivered the appropriate level of services to the community.

It also argues that chasing a AAA rating can be futile when a state’s hard work can be undone by externalities.

“For example, if the commonwealth were to lose its sovereign AAA credit rating it is extremely unlikely that any state would maintain a AAA rating, regardless of the strength of its own balance sheet or other rating factors," it says.

The panel noted however that if its other recommendations were followed then it was likely that a AAA credit rating would come the state’s way in any event.